Acquired by Southern Company in July 2016, AGL Resources was an energy services holding company whose primary business was the distribution of natural gas. Subsidiaries of the company included gas utilities in Illinois, Georgia, Virginia, New Jersey, and Florida.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
Effective October 1, 2000, AGL Resources acquired all the outstanding common stock of VNG, a wholly-owned subsidiary of Consolidated Natural Gas Company and an indirect subsidiary of Dominion Resources, Inc. (DRI). The purchase price of approximately $535 million, paid in cash, included approximately $7.5 million in working capital. The acquisition was accounted for as a purchase for financial accounting purposes, and as a result VNG's operations were consolidated with those of AGL Resources beginning October 1, 2000. The excess purchase price of $183.6 million over the fair value of the assets acquired and liabilities assumed was allocated to goodwill, which was initially being amortized using a life of 40 years.
AGL Resources adopted the net presentation provisions of the June 2002 consensus for EITF 02-03 in the third quarter of 2002. As required under that consensus, gains and losses from energy-trading activities are presented on a net basis. AGL Resources has restated prior periods' revenues and cost of sales in the comparative financial statements.
On February 14, 2003, AGL Resources announced the completion of its public offering of 6.4 million shares of its common stock, including the exercise of the entire over-allotment option. This offering was made under AGL Resources' existing shelf registration statement. The offering was priced at $22.00 per share, and generated net proceeds of approximately $137.0 million which will be used to repay outstanding short-term debt and for general corporate purposes.
In November 2004, we completed our public offering of 11.04 million shares of common stock, generating net proceeds of approximately $332 million. We used the proceeds to purchase the outstanding capital stock of NUI and to repay short-term debt incurred to fund our purchase of Jefferson Island.
On November 30, 2004, we acquired all the outstanding shares of NUI for approximately $218 million, incurred $7 million of transaction costs and repaid $500 million of NUI's outstanding short-term debt. At closing, NUI had $709 million in debt and approximately $109 million of cash on its balance sheet (including the return of an interest escrow balance), bringing the net value of the acquisition to approximately $825 million. In connection with the acquisition, we incurred $23 million in employee-related restructuring charges, which include $16 million in severance costs, $4 million in change in control payments to certain NUI executives and the NUI Board of Directors, and $3 million of employee retention and relocation costs. The acquisition significantly expands our existing natural gas utilities, storage and pipeline businesses.
AGL Resources (NYSE: AGL) today announced it has completed its merger with Nicor Inc., creating the nation's largest natural gas-only distribution company based on customer count. With an enterprise value of $9.5 billion, the company will serve about 4.5 million utility customers in seven states. AGL Resources also announced that Standard & Poor's will add AGL Resources' common stock to the S&P 500 Index after the close of trading on Monday, December 12, replacing Nicor Inc. And effective Friday, December 16, the combined company will assume Nicor's ticker symbol - GAS - in trading on the New York Stock Exchange. Stockholders of the former Nicor received $21.20 in cash and 0.8382 shares of AGL Resources common stock, for a total of $54.43 based on the closing price for AGL Resources common stock, on December 8, 2011.
Southern Company and AGL Resources announced the completion of their merger. Under the terms of the agreement, each share of AGL Resources common stock was converted into the right to receive $66.00 in cash, for a total purchase price of approximately $8 billion.